Peering out of the window on a rainy and cold Sunday (election) afternoon in Copenhagen it is difficult not to paraphrase, yet again, one the Economist’s many classic cover stories but really; it sure has been one hell of ride this week in Latvia. One wonders whether politicians and economists in the central bank really want to see what happens come tomorrow as markets and the flow of news re-commence. The truth however is that they really do not have a choice. Consequently and what actually started a little more than a week ago has now steadily turned into the well known story of politicians and official authorities doing their best to maintain a crumbling edifice. Markets, analysts, and commentators, on the other hand, are beginning to smell a rat and this particular rat looks set to gnaw its way right to the core of the Latvian economic edifice in the form of the Latvian peg. Continue reading
Monthly Archives: June 2009
The Nub of the Matter?
From Brad DeLong:
The key irrationality [causing the present crisis] was a private-sector failure on the part of the shareholders and top managements of the banks to make sure that their traders had an appropriate stake in the long-run survival of the bank and not just in constructing a portfolio that would be marked-to-market at a high valuation on Dec. 31. And the government needs, for all our sakes, to compensate for this private-sector irrationality.
That’s the conclusion of a very interesting argument.
May Manufacturing Improves Again According To The JPMorgan Global PMI Report
Global factory activity continued to improve in May amid growing optimism that the worst of the recession may be over. Output contracted at a much less ferociously than at the start of the year in one economy after another, and this month three countries actually registered output growth – India, China and Turkey. The JP Morgan global manufacturing index (PMI) rose to 45.3 in May from 41.8 in April, the highest level in nine months, although still a long way below the 50.0 mark dividing growth from contraction. The component indexes for output and new orders were both running at much higher levels than in April.
However, the headline PMI is still at a very low level by historic standards, and well below one which would be consistent with outright recovery. On the other hand, it is clear that the easing of the worldwide manufacturing recession which we have been seeing over the past two months has continued and has been substantial. The month-on-month gains in the PMI, output and new orders indexes in April and May are the greatest in the series history (which is not that surprising follow a series of record falls). All of the national indexes for these variables rose during the latest survey period.
Among the countries surveyed (see foot of post for details) only India, China and Turkey reported increased production. Japan (slowest for 13 months), the United States (weakest fall in current nine-month downturn) and the United Kingdom (slowest drop in a year) saw substantial easings in their respective rates of contraction. Although the Eurozone vastly underperformed relative to the global average, its output index rose to the greatest extent in survey history and to an eight-month high.
New orders contracted for the 14th month running in May, the longest period of contraction in the survey history. However, the Global Manufacturing New Orders Index climbed to 48.6, its highest level in a year. The rate of decline in global trade slowed sharply to its weakest since last September. China and India reported increases in total new orders for the second successive months in May. The U.S. and Turkey were the only other nations covered by the global survey to report gains, with new business rising for the first time in one-and-a-half years in the U.S. and for 17 months in Turkey.
Although May data pointed to substantial jobs losses, the rate of decline eased to a six-month low. Employment has now fallen for 14 successive months. Almost all of the nations covered reported lower staffing levels, the exceptions being India (slight gain) and China (no change). Among the other countries, only the U.S. and Austria failed to report slower rates of decline. The pace of job cutting eased to five, six and seven-month lows in the Eurozone, Japan and the U.K., respectively.
At 40.8 in May, the Global Manufacturing Input Prices Index posted its highest reading since October 2008 but remained below the neutral 50.0 mark for the eighth month running. Only India and Russia saw increases in costs. The rate of decline eased sharply in the U.S.
What follows is a very extensive country-by-country, blow-by-blow account assembled from across the national reports. It is probably too dense to read at one sitting, but you can simply pick and tick the regions and the countries that interest you, as I do think the monthly manufacturing PMIs give a reasonable picture of what is actually going on, as opposed to what some would like to believe is going on. Continue reading
Update on the Potential for Devaluation in Latvia
As I pointed out recently in the context of Latvia and the impending potential for a devaluation there is a distinct risk of falling victim to the sin of crying wolf. Yet, as the plot inevitable thickens I am maintaining, as it were, my cry. There are two significant points to think about in the context of what we might call recent developments. First of all there is the news that the 2009 deficit envisaged in the budget before the Latvian parliament will amount to 9.2% of GDP – significantly higher than the original IMF agreed “limit” of 5%, and even well above the latest negotiating objective of the Dombrovskis government of 7%. Of course, this is just number salad but at the end of the day it is important because it determines whether and under what condition the IMF funded bailout packaged continues. The fact that Latvia reports a deficit of this magnitude almost amounts to throwing in towel in my opinion or at least it means that the playing field is now a different one when it comes to IMF funding. Continue reading
Struggling for the positives
Usually when an IMF mission issues a departing statement, it’s along the lines of thanking everyone for their hospitality and generally sounding positive about the scope for progress even when circumstances aren’t that great Not so the just issued statement after the latest visit to Moscow. It quickly gets to blunt criticism of the government for: lack of clear policy on domestic banking crisis, mismanagement of capital inflows and the exchange rate, botched fiscal stimulus, backtracking on WTO Accession, and in a nod to a favourite topic of our own Edward —
The urgency of advancing reforms is heightened by adverse demographic factors, which are leading to a contraction in the labor supply.
It’s probably hard to get the government to focus on declining labor supply as a problem when they are more focused on unemployment. But in fact, part of the Fund’s exasperation with Russia may reflect the collateral damage the crisis is already inflicting on its CIS neighbours, which provide a critical part of the Russian labour force. The decline in remittances to these countries is causing major problems (see pages 24-28) — in fact, the problems look much worse than the more talked about impact of the Arab Gulf slowdown on South Asia.  Overall, the tone of IMF-Russia dialogue sounds like a case of an important country that isn’t planning on needing a Fund program but the Fund views as too important to be left entirely to its own devices.
Rio to Paris
As media furiously refrain from speculating, it’s odd to be hoping that a lightning strike, an electrical malfunction, or some combination of both was responsible for the crash of an Air France flight that disappeared over the Atlantic Ocean last night while en route from Rio de Janeiro to Paris. Because there aren’t a whole lot of other possibilities that don’t involve explosions.
While flying between the two cities is far, far safer than driving regularly in either of them, the stratosphere is an unforgiving environment, and the possibility of deliberate harm is also still out there. A sad day for both countries.